Any Sneeze Can Bring the Financial System of Belarus Down, Says Expert

The hole in the budget is getting fatal for the authorities.

The so-called "government" has presented the budget of Belarus for the next year. It provides for a deficit of 3 billion rubles. What are the options for such a huge "hole" in the budget?

"The financial system is now at such a breaking point that any sneeze can bring it down."

"The common ways to solve the issue of "where to get the money?" mean own reserves. For example, foreign-currency reserves," Vladimir Kovalkin, head of the Kosht Urada project, tells Nasha Niva.

"But is there an amount that can be safely allocated from our notional $8.5 million of gold reserves (one should remember that just over a billion dollars are SDR from the IMF. It is not easy to spend it)?" continues Kovalkin.

- In a more or less clear situation, it would be possible to predict both the terms and the volume. However, our situation amid additional sanctions is barely predictable. New equations appear all the time.

For example, we know the liabilities of the state banks (Belarusbank and others) increased due to placed reserves by the National Bank. To cover the deficit, these funds need withdrawal.

What will happen to the liabilities of the state banks? Where will the state banks get their liabilities then? Nowhere! It brings a non-payments crisis and the banking and financial crisis.

The financial system is now at such a breaking point that any sneeze can bring it down like a house of cards. That's why it's useless to make volume and timing predictions. Any whiff of wind can change the situation for the better or worse. Our situation will likely change for the worse. Because I can hardly imagine how the authorities will suddenly find money in large quantities.

"From the economic point of view, Belarus is not allowed to lend.

States usually borrow in order not to spend gold and foreign currency reserves. That is, they increase the national debt. Both internal and external.

" As for the public debt, it is quite difficult for it to grow now since there are not enough resources within Belarus," says Kovalkin. - As for the external one, it is twice as difficult to borrow something because of the sanctions and foreign policy situation".

The authorities planned to ask $3 billion from Russia; so far only $640 million have been received. Will it give us money? The expert reckons that Russia won't give us that much, but it can keep the pre-crisis state of the economy for a long time.

"To give or not to give money to Belarus is a political, not an economic issue for Russia. After all, one is not allowed to lend money to Belarus from the economic point of view," points out Kovalkin.

Given the last year, Putin is interested in keeping the economy of Belarus at a minimum. It means the economy is in a state of the permanent threat of collapse. This is the leash.

If necessary, one can pull it: You will not receive a transfer next month, so do as we say. That is why there is no certainty one will give us money. But there is a certainty that Putin will manipulate Lukashenka".

"There's not much extra family silver left."

The state can also get money from the privatization of state enterprises. As of 2020, the state fully or partially owned 3,275 enterprises.

"Here comes the issue of sanctions and what can and cannot be sold. In principle, everything state-owned that brings some foreign trade revenue, and everything that is more or less profitable, is already under sanctions," says Kovalkin. - Therefore, it is possible to sell it, but not profitable. Any adventurer (an adventurer is likely to be a buyer in this situation) will want a big discount. Because he knows that the next sanctions can follow and then, if he gets involved in such things, he can pay through the nose.

Therefore, the discount on such assets will be high. To put it simply, one can't sell them for too much. However, Lukashenka and his entourage may take this step".

Kovalkin notes if the government agrees to the privatization, it is necessary to sell quite a lot of businesses to get 3 billion rubles.

"There is not much extra family silver left," says the economist.

"The first thing one usually cuts in such cases is capital outlay."

In the end, the economist says it is always possible to cut budget spending.

"There is an option of not paying debts. That's not an option because it's a default situation. The first thing subjected to cuts in such cases is capital outlay: landscaping, repair of roads, bridges, pipelines, power plants.

Conditionally, everything that can still work for some time," says the economist. - The next question is: at whose expense should expenditures be reduced? Who will not receive money? Officials? Teachers? The army?

"The struggle between ministries and agencies over the budget will intensify. It will be interesting to watch who wins," notes Kovalkin. - If they start to cut state employees' wages, it will mean the situation is stalemated. By the way, they have started to reduce bonuses for medical workers. Obviously, the situation is already quite painful.

"But they will still have to cut, as the country is under sanctions. Its foreign trade balance, the debts, and the forecasts won't let it survive without any shocks for long. If this deficit remains for a long time, it will cause devaluation and inflation," says the expert.